High Court of Australia Judgments – Summary Notes

The following Judgments are summarised in this issue. The summary notes follow after this list:

• General Motors Acceptance Corp Australia v Southbank Traders Pty Ltd [2007] HCA 19
• New South Wales v Fahy [2007] HCA 20
• Lockwood Security Products Pty Ltd v Doric Products Pty Ltd [2007] HCA 21
• Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22
• Albarran v Members of the Companies Auditors and Liquidators Disciplinary Board [2007] HCA 23
• Visnic v Australian Securities and Investments Commission [2007] HCA 24

General Motors Acceptance Corp Australia v Southbank Traders Pty Ltd [2007] HCA 19 (16 May 2007)

A vendor of motor vehicles sold on terms in which title did not pass to the purchaser until the total purchase price was paid had a security interest in the vehicles within the meaning of the Victorian Chattel Securities Act, the High Court of Australia has held.

In 2002, Southbank Traders, a motor vehicle wholesaler, sold 10 vehicles to Kingstrate Pty Ltd, trading as Dandenong Suzuki. The sale agreement contained a clause by which the vendor retained title to the goods until the purchase price was paid. Kingstrate took possession of the vehicles. While the purchase price was still unpaid, Kingstrate sold on the vehicles to a financier, General Motors Acceptance Corporation (GMAC), while still displaying them for sale. One vehicle was later sold to a member of the public and is not the subject of litigation. GMAC registered a security interest under the Chattel Securities Act in December 2002. Southbank did not register a security interest at the time of the original sale. The Act defines “security interest” as an interest in or a power over goods which secures payment of a debt or the performance of any other obligation and includes an interest in or power over goods of a lessor, owner or other supplier of goods.

Section 7(1) of the Act provides that, where a secured party has an unregistered security interest or a registered inventory security interest in goods but is not in possession of them, and a purchaser purchases or purports to purchase the goods for value in good faith and without notice of the security interest from a supplier who is the debtor or another person in possession of the goods, the security interest of the secured party is extinguished. In May 2003, Southbank sued GMAC for conversion (wrongful dealing with goods inconsistently with the owner’s rights) or alternatively for detinue (wrongful detention of goods). Southbank denied that its interest was a “security interest”. It also disputed that GMAC’s purchase or purported purchase was for value in good faith and without notice. In the Victorian County Court, Judge Timothy Holt dismissed Southbank’s claim on the ground that it had an unregistered security interest in the vehicles which had been extinguished upon the purchase or purported purchase of the vehicles by GMAC by the operation of section 7(1). Judge Holt’s decision was reversed by the Victorian Court of Appeal, which held that Southbank did not have a security interest and that section 7(1) did not apply to extinguish its interest, so it was entitled to succeed. GMAC appealed to the High Court.

The High Court unanimously allowed the appeal. It held that Southbank, as a vendor of motor vehicles sold by way of conditional sale, on terms that possession did not pass to Kingstrate until the purchase price was paid in full, had a security interest in the vehicles within the meaning of the Chattel Securities Act and that this interest was extinguished by section 7(1). The Court held that a conclusion that “security interest” includes conditional sales is consistent with the purpose of the legislation, the statutory context, and the text itself. Outstanding issues were remitted to the Court of Appeal, which may then be remitted to the County Court for further trial.

New South Wales v Fahy [2007] HCA 20 (22 May 2007)

The State of New South Wales was not liable in damages for negligence when a police officer was left unassisted with a seriously injured man and later developed post-traumatic stress disorder, the High Court of Australia has held.

Gemma Fahy was 25 and had been a police constable for three-and-a-half years when she and her colleague, Senior Constable Steve Evans, were called to a hold-up at the Edensor Park Shopping Centre in western Sydney on 25 August 1999. The video store proprietor had been stabbed and had walked to a nearby medical centre. Ms Fahy went into the treatment room but Mr Evans did not. The victim was drenched in blood and a doctor was dealing with a stab wound to the chest. She asked what she could do to help and he asked her to check the victim’s left side as he was complaining of pain. The victim had a deep laceration from his armpit to his waist and was bleeding profusely. Ms Fahy tried to stop the bleeding by applying medical pads and holding the wound together. At the same time she used her radio to call for an ambulance and to relay descriptions of the two assailants. The victim, who survived the attack, gave her messages for his wife and children and she kept him talking. Ms Fahy then assisted the ambulance officers. The senior officer on the scene, Inspector Alan Whitton, looked in but left immediately and later told her to put hat on as the media were there. She then went to inform the victim’s wife, who collapsed, then returned to help secure the scene from contamination until Inspector Whitton ordered her home because he was not going to pay her overtime.

In 2001, Ms Fahy succeeded in an action in the NSW District Court, and was awarded damages for negligence of $469,893. She claimed she had developed post-traumatic stress disorder due to being unreasonably left in a traumatic situation without the support of a fellow police officer, and her injury was in consequence of a breach of duty by her employer to take reasonable care for her safety. Ms Fahy had attended an unusually high number of fatalities but said she always coped because a partner was with her and they could share the tasks. An appeal by the State to the NSW Court of Appeal failed on liability but succeeded on the question of damages. The Court of Appeal remitted the case back to the District Court to reassess damages in light of Ms Fahy’s failure to take prescribed anti-depressants, but the State appealed to the High Court in relation to liability.

The Court, by a 4-3 majority, allowed the appeal. The majority held that Ms Fahy had failed to establish that the State breached its duty of care and that it was not sufficient merely to allege that the State should have instructed police officers working in pairs that they should whenever possible remain together and that they should provide psychological support to each other during traumatic incidents. Many circumstances would require them to separate and the support they could give one another varies with the individuals concerned and the situation. An obligation to stay together would create tension between an officer’s duties at a crime scene — which are mandated in the Police Service Act — and the need to protect a fellow officer. The majority held that the system of work was not deficient.

Lockwood Security Products Pty Ltd v Doric Products Pty Ltd [2007] HCA 21 (23 May 2007)

A deadlock in which a key unlocks the door from the inside as well as the outside so that people are not trapped in their homes involves an inventive step, the High Court of Australia has held.

Lockwood filed its patent application in 1997 and the patent was registered in 2000. Lockwood said the new deadlock overcame the problems with existing deadlocks, which have a second key-operated lock inside which must be unlocked separately to exit the house. These were designed to prevent the removal of large items during a break-in. However if a key is left in the outside lock or misplaced without the inner lock being unlocked, occupants could be trapped inside. The patent is for a deadlock where the key would open the outside and inside locks simultaneously.

In 2000 Lockwood’s lawyers accused Doric (and others) of infringing the patent. Doric commenced proceedings in the Federal Court of Australia alleging Lockwood had made unjustified threats of legal action. Lockwood cross-claimed for infringement of 19 of the 33 patent claims. Doric in turn cross-claimed seeking revocation of the patent, alleging the patented lock was not novel, that it was obvious and involved no inventive step, that the specification did not fully describe the invention, that certain claims were unclear, and that none of the claims were fairly based on the matters described in the patent specification.

Justice Peter Hely rejected all Doric’s claims except lack of fair basis. He consequently found that 32 of Lockwood’s claims were invalid and ordered they be revoked and dismissed Lockwood’s cross-claim alleging infringement but granted a stay of judgment. The Full Court dismissed an appeal, upholding Justice Hely’s conclusion that claims 1 to 32 were invalid. Lockwood appealed to the High Court. In 2004, the Court unanimously allowed the appeal, declared that the patent claims were fairly based on the specification, and remitted the matter to the Full Court of the Federal Court to resolve remaining issues. In 2005, the Full Court dismissed the remainder of Lockwood’s appeal. It revoked many of the patent claims due to a lack of an inventive step with some claims also removed for lack of novelty. Lockwood again appealed to the High Court in respect of the Full Court’s reasons dealing with obviousness or lack of inventive step.

The High Court unanimously allowed the second appeal. It held that the addition of a lock-release mechanism to unlock the deadlock inside a house (expressed in claim 1 as adding an extra integer to five existing integers of a deadlock) was an inventive step, as it was not obvious to a person skilled in the relevant art, namely lock design. The combination of integers was not common general knowledge, and it was also relevant that no-one had previously arrived at a solution to the known problem that inspired Lockwood’s design. The Court set aside various orders of the Full Court, including the order that certain claims of the patent be revoked for lack of inventive step. The High Court ordered that Doric be restrained from infringing particular claims of the patent and from supplying a latch assembly with the particular features of Lockwood’s deadlock. Issues still to be finalised were remitted to the Full Court.

Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 (24 May 2007)

A Sydney developer had not acted in breach of his fiduciary duties to his joint venture partners, the High Court of Australia has held.

Farah Constructions, controlled by Farah “George” Elias, a real estate developer, and Say-Dee, controlled by businesswomen Sadie Elias (no relation to Mr Elias) and Dalida Dagher, entered into a joint venture in 1998 to buy and redevelop No 11 Deane Street, Burwood. Say-Dee contributed $225,000, plus stamp duty, while the rest of the $630,000 price was borrowed. No 11’s four run-down units were refurbished and rented out, prior to a planned demolition. Farah submitted a development application (DA) to Burwood Council for a combined commercial-residential project. The Council rejected it as too big for an 11-metre-wide site with no room for parking. The development would require amalgamation with adjacent blocks. Mr Elias, his wife Margaret, and teenage daughters Sarah and Jade each bought one of the four units at No 15 Deane Street and one of the four at No 20 George Street, which backed on to No 15, totalling $2.06 million. His company, Lesmint, bought No 13 Deane Street for $1.68 million. Mr Elias gave evidence that he had invited Ms Dagher and Ms Elias to join in the purchases of Nos 13 and 15 but they declined for financial reasons. He offered to buy Say-Dee’s interest in No 11. Say-Dee declined and relations deteriorated. Problems spiralled, with the project having stalled, rents not meeting mortgage repayments, all three principals in financial difficulty, and Ms Elias diagnosed with cancer.

In the NSW Supreme Court in March 2003 Farah filed a summons against Say-Dee seeking an order that a trustee be appointed over No 11 and that it be sold. Say-Dee filed a cross-claim that the Eliases, Farah and Lesmint held their interests in Nos 13 and 15 on constructive trust for the partnership between Say-Dee and Farah. Justice George Palmer gave judgment for the Farah group, made orders for the sale of No 11, and dismissed the cross-claim. He accepted the evidence of Mr Elias that he had invited Ms Dagher and Ms Elias to join in the purchase of Nos 13 and 15.

The Court of Appeal overturned Justice Palmer’s finding about Mr Elias’s invitation to Ms Dagher and Ms Elias. It also found that Farah’s fiduciary duties to Say-Dee were wider than Justice Palmer had considered them to be and that Farah breached those duties by failing to tell Say-Dee that the Council regarded the acquisition of Nos 13 and 15 and their amalgamation with No 11 as essential if No 11 were to redeveloped to its full potential. The Court of Appeal made a declaration that Mrs Elias and her daughters held their units in Nos 13 and 15 on constructive trust in favour of the Farah-Say-Dee partnership, and appointed receivers to obtain development consent and sell all their blocks together.

Farah appealed to the High Court which unanimously allowed the appeal and ordered that Justice Palmer’s orders be restored. It accepted that Say-Dee was aware the Council had rejected the DA and that the problem might be overcome by developing No 11 with adjoining land, and that Mr Elias had invited Ms Dagher and Ms Elias to participate in acquiring Nos 13 and 15 but they had declined. Farah had a fiduciary duty to tell Say-Dee information about the Council’s view and the opportunities to buy Nos 13 and 15. Farah fulfilled its obligation of disclosure about the Council’s attitude and the Say-Dee principals had enough business experience to give informed consent to Mr Elias pursuing the purchase of Nos 13 and 15. Say-Dee’s unwillingness to participate in a larger development was not a barrier to Farah proceeding on its own behalf. The Court rejected the grounds on which Mrs Elias and her daughters could have been made constructive trustees on behalf of Say-Dee and held that they were not liable to Say-Dee in any way.

Albarran v Members of the Companies Auditors and Liquidators Disciplinary Board [2007] HCA 23 (24 May 2007)

Visnic v Australian Securities and Investments Commission [2007] HCA 24 (24 May 2007)

The suspension of two liquidators and the disqualification of a company director were not invalid as they did not involve the exercise of the judicial power of the Commonwealth by a non-judicial body, the High Court of Australia has held.

ASIC applied to the Companies Auditors and Liquidators Disciplinary Board for orders suspending Mr Gould’s registration as a liquidator and cancelling Mr Albarran’s registration as a liquidator. The Board suspended Mr Gould’s registration for three months. He applied to the High Court for prohibition against the Board and ASIC to prevent them carrying out the order. He also sought a declaration that certain laws, particularly section 1292 of the Corporations Act which confers powers and functions on the Board, were invalid on the ground that the power to suspend someone’s registration is punitive, hence exclusively part of the judicial power of the Commonwealth which could not be exercised by the Board. Before ASIC’s application relating to Mr Albarran was heard by the Board, he applied to the High Court for an order preventing ASIC from proceeding with the application. The Court refused a stay of the application. It remitted both liquidators’ proceedings to the Federal Court, where both were dealt with by the Full Court. In May 2006, the Full Court held that the Board’s exercise of power under section 1292 does not involve the exercise of the judicial power of the Commonwealth and dismissed both proceedings. In the meantime, the Board had proceeded to a determination adverse to Mr Albarran and ordered a nine-month suspension of his registration. Both Mr Albarran and Mr Gould appealed to the High Court.

Mr Visnic was a director of 14 companies which had been wound up. In January 2006, ASIC, exercising power under section 206F of the Corporations Act, disqualified him from managing corporations for five years. ASIC’s statement of reasons said Mr Visnic was not fit to manage corporations as he had demonstrated a lack of responsibility towards creditors, so for the protection of the public he should be prohibited from managing a corporation. In the Federal Court he sought a declaration that section 206F was invalid but the matter was removed into the High Court and heard concurrently with the two appeals.

The High Court unanimously dismissed both appeals and Mr Visnic’s action. It held that the Board’s function is not to find whether an offence has been committed and, if so, to inflict a punishment, but is to assess whether someone should continue to occupy a statutory position involving skill and probity, in circumstances where the Board is satisfied that the person has failed in the performance of their professional duties. The Court held that section 1292 confers upon the Board a power that is administrative in nature, not a power of an essentially judicial character, which may be conferred only upon courts exercising federal jurisdiction. It held that section 206F confers upon ASIC a power to be exercised for the maintaining of professional standards in the public interest. Section 206F empowers ASIC to determine that a person no longer manage corporations and may look to the person’s corporate conduct but there is no determination of guilt with respect to any offence. The Court held that in acting under section 206F ASIC does not exercise the judicial power of the Commonwealth. Both sections 206F and 1292 are constitutionally valid.